AIP Tax Planning & Estate Strategies Flashcards
6 cards from real AIP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AIP Tax Planning & Estate Strategies flashcards as text
Long-term capital gains (assets held over one year) in the US are taxed at rates that are generally:
Answer: Lower than ordinary income tax rates, with a maximum of 20%
Long-term capital gains receive preferential federal tax treatment with rates of 0%, 15%, or 20% depending on income, significantly below the top ordinary income rate of 37%.
Which IRS provision allows investors who are 50 or older to contribute additional 'catch-up' amounts to qualified retirement accounts?
Answer: The catch-up contribution provision under Section 414(v)
Section 414(v) permits workers aged 50 and over to contribute additional catch-up amounts above the standard limit to 401(k), IRA, and other qualified plans to accelerate retirement savings.
Estate planning with an irrevocable life insurance trust (ILIT) is used primarily to:
Answer: Keep life insurance proceeds out of the taxable estate while providing liquidity for heirs
Because the ILIT — not the insured — owns the policy, the death benefit is excluded from the insured's taxable estate while still providing cash to heirs for estate taxes or expenses.
What is a required minimum distribution (RMD) in the context of US retirement accounts?
Answer: The minimum annual withdrawal the IRS mandates from tax-deferred retirement accounts after a certain age
The IRS requires holders of traditional IRAs and employer-sponsored retirement plans to begin withdrawing a minimum amount annually starting at age 73, ensuring the government eventually collects taxes on those deferred funds.
A Grantor Retained Annuity Trust (GRAT) is an estate planning strategy designed to:
Answer: Transfer asset appreciation above the IRS hurdle rate to heirs gift-tax free
In a GRAT, the grantor receives fixed annuity payments for a term; if the assets grow faster than the IRS Section 7520 rate, the excess appreciation passes to beneficiaries free of gift tax.
Which of the following best describes the 'wash sale rule' in US tax law?
Answer: A rule that prevents investors from deducting losses if they repurchase a substantially identical security within 30 days before or after the sale
The wash sale rule disallows a tax loss deduction when the same or substantially identical security is bought within the 30-day window surrounding the sale, preventing investors from manufacturing artificial losses.